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Americans Unsure of What Impact Economic Conditions Will Have on Personal Finances

Lack of clarity from the Fed fosters uncertainty among Americans

March 1, 2016

Americans have a lack of confidence in the economy following the Federal Reserve’s interest rate hike and a rocky start to the year in global financial markets. On average, Americans believe there is a 36 percent chance that the U.S. economy will fall into a recession this year, according to a COUNTRY Financial survey.

The COUNTRY Financial Security Index, a survey of 1,000 adults, examines American sentiment on personal financial security topics. The latest index reveals that many are feeling uncertain with the state of the economy. Additionally, they are unsure how the recent interest rate hike – as well as potential future increases – will influence both the economy and their personal finances.

This wariness comes on the heels of a slight dip in the most recent measure of overall financial security by COUNTRY Financial taken in December 2015. After reaching post-recession highs in June 2015, the Financial Security Index dipped from 66.9 to 66.6 following months of financial market volatility and interest rate uncertainty.    

“While the Federal Reserve has taken its first steps in normalizing U.S. monetary policy, future rate hikes will be measured,” said Troy Frerichs, director of wealth management at COUNTRY Financial. “Right now we don’t view U.S. monetary policy as a major headwind for the U.S. economy in 2016. Furthermore, despite the rocky start to the year in the financial markets, the U.S. economy continues to grow with strong support from the labor markets and low energy prices.”

Interest rate confusion Americans at large are unsure how potential interest rate hikes in 2016 will affect the U.S. economy – and very few have a positive outlook. Less than 20 percent believe raising interest rates in 2016 will help the U.S. economy, while even fewer (11 percent) believe it will benefit them personally.

In contrast, many Americans have a negative outlook on interest rate increases, but an even larger group, frankly, don’t know what to expect:

  • 31 percent of Americans report that they “don’t know” what the Federal Reserve’s actions on interest rates will do to the economy
  • Nearly one in four (23 percent) don’t know how slowly raising interest rates will impact their; personal financial situation.

“While the Fed usually begins to raise short-term interest rates to keep the economy from overheating, in this instance, the economy isn’t showing signs of excess and this is more of a normalization process of historically low rates,” said Frerichs. “Initially consumers won’t be deterred from buying homes or cars simply because of this initial rate hike. Financing costs are still very low.”

Millennials concerned after first rate hike When the Federal Reserve increased interest rates at its December 2015 meeting, it was many millennials’ first exposure to an interest rate increase as financially independent participants in the economy and financial markets.

After growing accustomed to historic lows in interest rate levels, millennials are significantly more likely to be unsure about the impact of higher interest rates. Forty percent of millennials are unsure how rising rates will impact the economy and 32 percent do not know how rising rates will influence their own financial situation.

However, over half of millennials believe that the likelihood of rising interest rates will matter when it comes to making major purchases – such as buying a car or home – now and in the future.

“The initial rate hike was more important for headlines than for the health of the economy and the economy will need to continue to show improvement for the Fed to keep raising interest rates. A strong economy should buffer concerns about rising interest rates, especially given the current levels of interest rates.”

Want to learn more interesting findings from the latest COUNTRY Financial Security Index? You can find more information on this topic and many others on the COUNTRY Financial Security Blog. Meantime, follow us on Twitter @helloCOUNTRY.